Alcidion Group Limited (ALC) Earnings Call Transcript & Summary

Good morning, everyone, and a very warm welcome to this morning's presentation of Alcidion's 4C quarterly cash flow and business update for the second quarter of FY '23, which was released on the ASX this morning. My name is Kerstin Wahlqvist, and I am the Investor Relations Manager here at Alcidion. I'd like to begin by acknowledging the traditional owners and custodians of the various lands on which we work and meet today and to pay my respects to their elders past and present. I extend that respect to Aboriginal and Torres Strait Islander people who have joined us on the call today. Today's webcast will feature a short presentation by Alcidion Managing Director, Kate Quirke, who will take you through the numbers and an accompanying business update. This will be followed by some time for Q&A. Joining us on the call today is also our CFO, Matt Gepp, who will be available for call -- for questions as required as well. [Operator Instructions] We've received some questions in the lead up to today's sessions, but we'll hold all those questions until the end of the presentation. With that, over to you, Kate.

Thanks, Kerstin, and thank you, everyone, for joining us this morning, and a very happy new year to you all. This morning, as Kerstin said, I'll give you a general business update alongside the numbers that we released and reported this morning with the business update. So getting straight into it. Q2 was a really exciting quarter for Alcidion, and I'm very pleased with the progress we're making. We had 2 very significant contracts were signed during the quarter. And those contracts demonstrate and continue to validate our position to the health care market, which is demonstrated through the modular approach we're taking to providing solutions to the health care system. As a result of those 2 contracts plus a number of smaller contracts and renewals, we made $16.8 million in total contract value on new sales, which is actually the second highest quarter of new sales in the company's history, so hence, why I'm very pleased with the progress. The initial 3-year contract with University Hospital Southampton, or UHS as we refer to them in the U.K., is to implement the Miya Precision platform as the foundation for their electronic patient record. And it demonstrates exactly the proposition we have for the NHS. Alongside that, we had an $8.4 million extension to our existing contract with Leidos Australia for the delivery of a health and knowledge management system for the ADF. And so those 2 significantly contributed to that $16.8 million, along with a number of other smaller contracts as well. Of the $16.8 million of new sales, $4.2 million will be able to be recognized in this financial year. Both those contracts are strong validation of Alcidion's modular strategy for health care solutions deployment. And it's important that we recognize the validation because it is the proposition we've been taking to the market very specifically. And the reason we're doing that is because it enables our customers to maintain rather than replace existing technologies and progressively build an electronic patient medical record over time. And that approach aligns both with their budget and their timing necessity and requirements to actually get some value and early value out of their investments in health care IT rather than potentially traditional deployment of a large single integrated EMR that may take several years to implement, and therefore, the value is not recognized as early as we would see. I also note that our contracted revenue stands at $32.9 million, which is up considerably on the same time last year. And when coupled with expected renewals plus -- sorry, with the renewals, it means that their revenue able be recognized this year stands at around $34 million, and that's without any further sales being made in this financial year, which, of course, we would expect to happen. So the NHS remains a key target market for us, and we have seen significant activity in the last month as in January around tenders and funding guidelines for trust, which is great to see that the activity is really kicking off now. It is somewhat behind the timing that was originally proposed. We would have expected to see this through the last quarter of last year. And it's understandable. There was a lot of, obviously, political change and so forth going on. But what we're seeing now aligns with what our expectations are, as I said, albeit somewhat behind where we anticipated it to be. So we remain confident in our ability to meet our expected target of being both cash flow and EBITDA positive in FY '23 provided, as I said, the NHS continues the momentum that we've seen through the coming months through the end of the year. In the first half of FY '23, we collected $8.8 million of cash receipts, an increase of 15% on the prior corresponding period. And this continues to illustrate our ability to strongly -- a strong ability to turn revenue into cash. We have recorded negative operating cash flow for the quarter of $4.5 million. And in general, that's a result of lower-than-expected collections in December. And this was due to the timing of the half year end, which was the last year [ bank ] day being a Saturday. And I know that sounds crazy, but sometimes we do get quite a few payments coming in on the 30th and 31st post the Christmas period. But important to note that there were some larger receipts in that, that we did expect to collect in late December that didn't come through until early January. And so that reflects some of the lumpy significant milestone payments that Alcidion receives for big projects like the ADF project, for example. And the timing of payments at this time of year always has some uncertainty. And as I said, there's a significant milestone that falls around the end of the month that are -- it could just slip over to early January, so the reporting reflects that. It doesn't, in any way, reflect the progress of the business in any negative manner. We are collecting cash, and as we indicated in the business update in January, we collected $5.2 million in cash for that month. So that was a very strong month. Q2 cash payments were $11.3 million compared to $12.5 million in Q1. And we have a cash balance at December 31 of nearly $12 million with no debt, obviously, with further cash coming in, in January. As you can see from the graphs on this slide, all indicators are continuing in a positive direction. We generated new TCV sales of 16.8% in Q2 with approximately $4.2 million of that able to be recognized in this financial year. Those new sales comprised $12.8 million in recurring product revenue, or around 76% is recurring product and around $4 million of nonrecurring services revenue, which is basically the revenue that we charge for implementation of our projects. And as you would expect, the defense force project has -- always has a greater amount of services revenue perhaps than some of the others because of the way in which we work with Leidos to deploy our solutions. Cash receipt from customers in the first half were $18.8 million, 15% higher than in the prior corresponding period. And you'll see from the cumulative cash receipts graph ware tracking in a positive and consistent manner to prior years. As I mentioned earlier, we have had the second and last quarter of new sales in the company's history, and I thought it was worth briefly talking you through some of those notable contracts that allowed us to achieve that result and why I'm excited about them. We're really pleased with the trajectory of new sales and also that these contracts landed within our expected timing, as I indicated on the quarterly call last quarter. So the first of those, I want to talk about is UHS, or University Hospital Southampton. We signed an initial 3-year agreement with options to extend to 4 and then obviously beyond that. And that was to implement Miya Precision as the foundation for their electronic patient record. We will partner with UHS to deliver a modern modular electronic patient record, using a combination of Alcidion solutions and modules and the incumbent products that UHS is already using that are part of those and also that extended to us being able to resell a couple of UHS-owned products as part of our total modular EPR, which is exciting. The initial implementation will be for Miya Access, Command, Emergency and Flow and obviously, the platform. And then the idea is that we will build on from there. So the contract includes options to take additional modules, such as the Silverlink, as we referred to in past as Silverlink Patient Administration System, what we refer to as our PAS module now. As -- and UHS will allow them to build their modern modular EPR over time, and we expect it to result in significant growth of the overall contract value that was initially indicated to the market. So it has the potential to reach around $13.8 million just for a 4-year period as many people will know if we are successful in rolling out all of those modules is as much -- it's very likely that UHS will use them for longer than a 4-year period. So we're very excited about it. And it allows UHS to begin implementation of the Precision platform, which is already under way. Software is deployed in the cloud and accessible to them, and we're starting to build that now. And then whilst that's happening now look at other priority areas for the additional modules and the orders in which they wish to do that with -- and the important part is they won't need to go to market or won't need to recontract for those additional modules. The agreement also increases our penetration in the National Health Service, or NHS, with at least one Alcidion product now in 40 NHS Trusts while further establishing the first implementation in a new integrated care system in Hampshire and Isle of Wight. As I mentioned at the beginning of the call, UHS is really well recognized and acknowledged as a digital exemplar, and we're really very excited to be working with them to demonstrate the value of this modern modular EPR and to the rest of England predominantly and what can be achieved using the Miya Precision platform and taking this modular approach. We also signed a contract with Bolton NHS Foundation Trust, who is an existing customer for Alcidion in 2 areas. They use our Miya observations and assessments, so previously known as patient track. And they were also using the extra med patient flow solution. You may remember, we acquired extra med for its patient flow market share back in April of 2021. And what -- as we had planned, Bolton has now signed to upgrade from extra med to put in Miya Precision. -- with a focus on using the Miya Flow and Access modules. And this agreement introduces Miya flow to the Greater Manchester ICS, and it extends our footprint at Bolton, where we already had -- at Royal Bolton Hospital where we already had some modules deployed. And again, this demonstrates our strategy to provide modular and incremental modules to customers where we have an existing footprint and thereby create an opportunity to continue to extend to all of their modules so that Miya Precision could become their electronic patient record of choice. We also signed a contract renewal agreement with University Hospitals Dorset for the use of the Silverlink patient care system, PCS. As you know, we acquired PCS at the end of 2021. The interest in that acquisition, as I said at the time was very much in how it expands the offering that Alcidion can take to the market and allows us to compete in these electronic patient records. Very clearly, if we had not had access to a PAS, University Hospitals, Southampton would not have been in a position to take on Alcidion solutions to replace an EPRs at some point in the near future, they need to replace their existing legacy PAS. So signing additional renewals for the Silverlink PCS customers is exciting for us because it extends the relationship for another 3 years. And it also validates, I think, the long-standing relationship Alcidion has with our existing customers and the trust that the England hospitals place in Alcidion and the Alcidion offerings. We also signed, as I touched on an $8.4 million TCV that is extension to the existing Leidos Australia contract for the health knowledge management system to support health care services to Australian Defense Force personnel. So the contract extension includes the addition of Miya observation and assessments to what was already contracted. So again, additional modules being sold in going to the customer first, land, I guess, it's often referred to as land and expand. But we've been able to then increase the number of modules that the ADF is using. But also excitingly, it's extended the reach so to new environments within the ADF or new care delivery settings within the ADF. So the combination of those brings the total contract value for Alcidion products and services to approximately $31.7 million. That was the initial -- that is a combination of the initial scope plus this scope. And then there's also, of course, on top of that, the option for renewals up to 15 years. We are at Alcidion are very proud of the role that Miya Precision is playing and it's increasingly more and more crucial to supporting the health outcomes of ADF personnel through the provision of a consistent longitudinal health record for clinicians who are providing such varied care across so many different settings when it comes to supporting ADF personnel. And I know that this is a challenge for defense forces around the world in respect of how you get that single view of all of the varied environments. So it's fantastic for us to be in a position to work with Leidos to deliver a world-class health care management system for the ADD. A little bit in respect to the outlook. As I said, we're very excited about the progress. We're absolutely on track. We end the quarter with total contract revenue able to be recognized around $32.9 million. That's an increase of 21% on where we were at the same time last year. We have a further $1.1 million of scheduled renewal revenue from existing customers that would be renewing their subscriptions during the period, which we expect to see converted in this financial year. And as we move into the second half of FY '23, that is we continue to see the need for digital solutions to streamline patient flow to support clinical processes. And of course, as I touched on in the AGM presentation to continue to support this move to virtual care or care being delivered in new care settings, which we're seeing a lot of interest, obviously, in the Australian market. I'm very excited not only for what we are doing within the NHS in England, but also how that is translating in the Australian and New Zealand market we've got with the Alfred and Northern Territory hospitals going live with the flow solutions in this quarter. It will be great to see how that is represented to the rest of the market as well in terms of their success and benefits. We do continue to research market expansion to new territories but I think it's important to note that we have a significant opportunity in our current territories, which we are completely focused on. So entry to new markets will involve a considered approach based on adequate research that's aligned to our strategy. And it will take time, but we are actively looking at different markets and some people will have seen on social media that we are attending Arab Health, which is a huge conference in Dubai this week really just to look at what is going on in that market and understand more about that market. Our half year results will be released towards the end of February. And at that time, I will provide a detailed update on progress during the first half and our focus for Alcidion for whole of the 2023 year. But I continue to thank you for your support and attendance. And we now can move to Q&A.

Thanks, Kate. And many thanks also to those of you who have submitted questions already. [Operator Instructions]. Any questions that are of a similar nature, I'll look to group by theme to allow for a greater breadth of discussion. But to kick off, Kate, you touched on this in the presentation, but we've had a few questions around Silverlink. So perhaps if you could just provide a bit of an update on Silverlink.

Look, I think those questions generally are around the rationale for the acquisition and the progress in respect of that. And I think it's really important to note, it is progressing as we anticipated and as we outlined really at the time of the acquisition. UHS has included Silverlink PAS in their contract. And we would not have been selected to provide an EPR to UHS without access to that PAS. And the ability to have -- to use that PAS is part of our stack and demonstrated as an integrated module within that modular EPR means that we can respond to the current tenders for EPR because we have a PAS. And as I said, we couldn't have done that prior to that. The current Silverlink customers are signing renewals, which provides us ongoing commitment, ongoing recurring revenue and an opportunity to further upsell into that customer because of the relationship that brings us. So I'm very pleased with what the acquisitions enabled thus far, and I know it will continue to do so into the future.

Thanks, Kate. And just a follow-on from that. If you could provide some more color on where the pipeline sits now versus this time last year and if we're seeing an average TCV uplift from Silverlink.

Thanks. And I guess it is related. The pipeline is definitely greatly advanced from where it was last year, and a lot of that is driven by these EPR opportunities and the funding that's coming from the U.K. But we also see increased pipeline and activity in Australia and New Zealand as well. In terms of the TCV, the overall TCV has, of course, increased because it's an opportunity to sell the Precision platform with additional modules alongside Silverlink. But whether they will be contracted like UHS in a modular nature or all at once like South Tees remains to be seen in respect of how that progresses. So I think there's definitely an uplift in the overall contract possibility, but they won't always contract for everything upfront.

Great. Thanks, Kate. Next question, can you talk a bit about the relationship of Alcidion with other health care technologies on the ASX, for example, Mach7's product service, eUnity? And what happens in the situation that there's overlapping other services from both pieces of software?

Well, there are many solutions, obviously, in health care. Some of this is here, some are overseas, some are large, some are small. Miya Precision as a platform seeks to ingest that data from platforms such as Mach7 and others that have got information that helps to build that longitudinal health record. And so that data is part of the data that we need to support clinical decision support in a single data location. So it would be from them. It would be from laboratory systems that are listed, many data sources that can be used to build a deeper and wider data source within Miya Precision.

Great. Thanks. And just a follow-on from that one. If there was a software that didn't already have synergy with Miya, how long does it take for that software to be integrated and usable with Alcidion technologies? Oops, I think we have just frozen.

Understanding how the data -- I've got bad Internet connection it's telling me. So I'm hoping that's working all right.

We're back on, Kate.

Okay. I'm not sure, I get everyone off the Internet. In many cases, it's going to be more about understanding how the data is to be used and what it represents in the overall longitudinal health record rather than the actual technical integration, which is a fairly straightforward approach.

Great. Thanks. Perhaps one for Matt, I think if -- can you comment on the proportion of the $5 million cash received in January -- sorry, sorry, a proportion of the $5 million cash received in January was scheduled to be paid in December?

Yes. Thanks, Kerstin. I'm happy to answer that. Yes, look, there's probably about just shy of half of that could have/should have been collected in December. But as Kate said, with the way the days fell, some of our receivables or some of our customers felt that the first week of January was on time as opposed to the last week of December. So yes, it was just shy of part for that number.

Thanks, Matt. And Kate, you have touched on this, but just -- perhaps if you could just reiterate if you can explain what happened with the contracts that you mentioned at the end of last quarter that we are going to be closed and just re-update on that. I think we have frozen again. Sorry, everybody. I'm sure she'll be back in a moment.

I'm going to stop sharing and see if that has -- can you get -- is there an Internet -- I'm just going to ask Mike. Is there a problem with the internet. Let me know.

We're back on, Kate.